Even if they have a deficit, they will enter KOSPI… The real reason Coupang went to the US

When Coupang, an online shopping mall in Korea, promotes listing on the New York Stock Exchange (NYSE), the turmoil surrounding it continues. “In Korea, it is difficult for companies with a deficit to be listed.” “They went abroad to escape financial regulations.” I checked the facts about Coupang’s trip to the United States.

One of the reasons Coupang chose the US New York Stock Exchange is’strict requirements for listing on the domestic stock market’. It is a logic that Coupang, who is in the last year’s deficit, will have difficulty breaking through the listing screening. According to the listing declaration filed by Coupang to the U.S. Securities and Exchange Commission (SEC), the cumulative deficit by the end of last year amounted to $4.118 billion (about 4.53 trillion won).

However, the accumulated deficit is not an obstacle to listing on the Korean stock market. From January 2017, there was a’Tesla requirement’ that allows even a company with a deficit to be listed on the KOSDAQ if there is growth potential. Cafe24, an e-commerce company, was first listed according to Tesla requirements.

In the case of the KOSPI, there is no’Tesla requirement’, but there are standards for growth. According to the Korea Exchange, there are two requirements for listing on the KOSPI: business performance and growth potential. Management performance requirements must meet the latest annual sales of 100 billion won (average of 70 billion won for three years), and 3 billion won in pre-tax profit for the latest business year (a total of 6 billion won for three years).

Coupang, which has a large deficit, can choose growth potential instead of management performance. The growth requirement introduced in November 2015 is because it gives high marks to’future growth’. The criteria can exceed the listing threshold if only one of the three criteria is’market cap 200 billion won/sales 100 billion won’,’market cap 600 billion won/equity capital 200 billion won’, and’market cap 200 billion won and operating profit 5 billion won’. Samsung Biologics and SK Biopharm went public after meeting the requirements for growth potential.

Coupang can also enter the domestic stock market with arms last year’s sales (about 13 trillion won) and market capitalization (about 55 trillion won). Shin Byeong-cheol, head of listing at the Korea Exchange, said, “Companies such as Coupang can be listed as many times as possible through the requirements for growth.” In the future, the listing threshold will be lower. The Financial Services Commission is also planning to introduce a route that allows the KOSPI to be listed on the KOSPI market only with the market cap if the market cap exceeds KRW 1 trillion.

Contrary to popular stories, some say it is more difficult to enter the US stock market than the domestic stock market. NYSE, which Coupang challenged, is known to have more stringent listing requirements than NASDAQ.

An IPO manager at a securities company who requested anonymity said, “The actual listing threshold is higher in the United States.” “Companies that dream of listing in New York often get frustrated before they even challenge the difficult listing screening and high costs.” Even after listing, there are more regulations, such as the obligation to disclose, and even if it is violated, it is more difficult to list the New York Stock Exchange as the sanctions are more severe, such as imposing fines.

Some analyzes say that differential voting rights, which are not available in Korea, are one of the main factors driving Coupang to the United States. Differential voting rights are a system to ensure that the founder or manager can operate a company stably without worrying about losing management rights. One class B stock held by the Chairman of the Board of Directors of Coupang Kim Bum-seok has the voting rights equivalent to 29 common stocks.

However, differential voting rights are not unique to the United States. Differential voting rights are also allowed in the UK, France, Germany and India. It was introduced in Hong Kong and Singapore in 2018 after Alibaba chose the New York Stock Market instead of Hong Kong in 2014. “Differential voting rights have spread to East Asia over the past three years,” said Nam Gil-nam, head of the Capital Markets Research Institute. “The countermeasures were strong to prevent tech companies from going to the US and attract them to their home countries.”

Experts say that Coupang’s trip to New York can enjoy the effect of catching’two rabbits’ in that it is easy to raise funds as well as differential voting rights. When listed on the New York Stock Exchange, the company is valued more highly than in Korea and it can attract more investment funds (investors). According to an analysis, the NYSE would have had an advantage in financing as it better assessed the value of innovative and patented companies.

Recently, foreign media such as the Wall Street Journal (WSJ) predicted that Coupang’s corporate value would exceed $50 billion (about 55 trillion KRW). It is 11 times higher than the market cap of E-Mart, a large domestic retailer (4,961.9 billion won). This is the result of giving a higher score for future growth than the label of ’10 thousand years’deficit.

Hwang Se-woon, a research fellow at the Capital Markets Research Institute, said, “The current PER of Korean stock markets is around 15 times, which is undervalued compared to New York (25 times).” “Calculate that Coupang can get a higher ransom price for choosing to go to the US. It will also be laid.” It is also interpreted as the reason that the company went directly to the New York Stock Exchange, which could lead the competition while gaining recognition in the global market by entering the world’s largest stock exchange, NYSE.

Coupang was sanctioned several times by financial authorities. In 2019, the Financial Supervisory Service’s electronic finance business inspection received a warning measure of’management intention’. This is because it does not meet the standards of equity capital (more than 20%) of electronic financial companies. At the time, the Financial Supervisory Service (FSS) demanded that the implementation performance be periodically reported by setting up a management improvement plan such as a capital increase. In addition, he pointed out that the marketing of’rocket money’, which is paid in Coupang Cash when cash is charged, is an illegal and pseudo-receiving activity.

An official at a securities company who requested anonymity said, “The US listing screening is more difficult, but the biggest advantage is that it is less regulated by financial authorities than listing in Korea and can be managed freely in the global market.” In fact, Coupang cited’regulation’ as one of the listing risks (risks) in the listing application. It is said that doing business in Korea may be subject to costs and penalties under the application of Korean laws and regulations.

There is also a view that’Samsung Biologics Learning Effect’ also influenced Coupang’s trip to the United States. Although I had the idea of ​​listing on the NASDAQ in mind, after listing on the KOSPI in 2016 due to recommendations from the financial authorities, the company was engrossed in controversy over the pretense accounting over whether the company valuation was appropriate.

Reporters Ji-Hyun Yeom and Eui-Young Hwang [email protected]